5 things you need to know about the Tax Holiday

The Tax Holiday is Aug. 1-5
5 things you need to know about the Tax Holiday

It was a give-and-take from beginning to end, but in April Gov. Scott Walker signed into law both a child tax rebate and sales tax holiday for parents buying “back to school” items for their families. The word “holiday” might give you the wrong idea – we’re not celebrating taxes that day, but rather making some items exempt from sales tax.

Democrats decried it as an election-year giveaway, while Republicans called it a way to put money back in taxpayers’ pockets. Either way, the first week of August will mark the first time you can shop sales-tax free in Wisconsin. Here are five things you should know about this new law.

1. It doesn’t apply to everything – and applies to some surprising things. The list of sales tax-free items includes clothing costing less than $75 per item, computers for less than $750, computer supplies less than $250 per item and school supplies no more than $75 per item. The law won’t apply to items like cellphones or cameras, sports equipment, school art supplies or protective equipment.

The Wisconsin Department of Revenue has broken this down even further. While sports equipment and things like mouth and shin guards are not tax free, athletic supporters (jockstraps) will be. You can get wedding dresses and formal wear tax free that first week in August, but you can’t get belt buckles or briefcases without paying sales tax. Garters, girdles and winter gloves are tax free, but not hair bows or handkerchiefs.

2. It’s not just a weekend, it’s a week. As initially approved by the Assembly and Senate, the bill included only one weekend – Aug. 4-5, 2018 – in the sales tax holiday. But the governor used his veto power creatively to extend it a full week. How did he do it? Well, the bill originally said, “For the 2-day period beginning on the first Saturday in August and ending on the following Sunday.” Walker removed the words “2-day” and “Saturday,” making the tax-free period a week long.

3. Some states are getting rid of tax holidays. National nonpartisan tax policy nonprofits such as the Tax Foundation and the National Conference of State Legislatures – and the Federal Reserve – have been tracking legislation like this across the country and evaluating its effects. A Tax Foundation study last year found 16 states held sales tax holidays, down from 19 in 2010. NSCL reports that New York was the first to try the idea in 1997, hoping to compete with New Jersey tax laws. But states have been dropping the idea recently. Georgia found that tax holidays didn’t spur more shopping and Massachusetts lawmakers were concerned about how much they were costing the state.

4. Buyer beware: Stores may raise their prices. It makes sense. If you knew a deluge of shoppers would come in because of a 5.5 percent discount on goods, would you raise the prices? The Tax Foundation points to a 2001 University of West Florida study that found, rather than saving $125 on items purchased during the tax holiday, taxpayers saved only about $100 because retailers raised the price of goods during the tax holiday.

5. Your pocketbook vs. state coffers. Given that this is the first year this law will be in effect, it’s unknown how much an individual will save or how much it will cost the state. A survey by the consulting company Deloitte found that the average family expected to spend $532 on school supplies last year. Taxes on that would total about $26. If taxpayers bought the same amount in two days as 14 days, the state could forgo about $51 million in sales tax revenue, according to the state’s nonpartisan Fiscal Bureau. But these are best guesses, and here’s why: The law doesn’t set a limit on how many items you can buy or a total price tag on holiday purchases.

As long as you stick to the per-item price limit and the list of allowed items, go nuts. Just hope your closet has room for the rubber pants and lab coats you can get and that your child can carry all the compasses and protractors you buy them.

Jessica Arp is assistant news director and chief political reporter of WISC-TV.